Thoughts on Sedona, AZ area market?
Fairfax, VA · Member since 2018 · 1 post · 1 vote
Have recently considered purchasing a rental property in the Sedona area and wanted to know some honest opinions from others with experience in this market. I've came across some relatively decent priced properties (compared to major city markets) but with the potential for positive cash flow from short term rentals (AirBnb, VRBO, etc).
Any thoughts on this type of rental. How much does exact location matter for rent-ability in this market? In the City of Sedona vs. nearby such as VOC.
Also, how seasonal are rentals? I know March-May is busiest, but hoping the rest of the year wouldn't be completely dead.
I own 5 vacation rentals in Sedona and am under contract on a 6th. It is getting much harder to find good properties to operate as vacation rentals in the area. This is because the market is hot (the whole state is) and acquisition prices have been going up. Also the vacation rental market has become more and more saturated so nightly rental prices are not going up, but staying flat at best.
With that said the right properties in Sedona can absolutely kill it with good operations in place, I am talking 12-18% NOIs. Most of the established property management companies in Sedona are not good with less than 30 day rentals even though they claim to be. They are great for 30 day + furnished rentals and also long term rentals, but they have not kept up with the times in the less than 30 day "rental" market and will not bring you the NOI that is actually possible on these.
Operations are key to driving the highest ROI on vacation rentals and it is not nearly as easy as people assume.
Busy season in Sedona is Spring and Fall. The slow season (summer) is really not that slow if you have priced your properties correctly. I use pricing algorithms so my rates are different all the time. Different days of the week, time of year, and local events affect these rates. Also the rates are affected by how far in advance a guest is booking or how last minute a booking may be. I also use differing night stay minimums depending on how far in advance a guest is booking. Further out = longer stay mins. Last minute = shorter stay mins. (Mon - Fri last minute I allow 1 night stays, weekends always 2 not matter what to avoid parties being thrown.) I have achieved 90%+ occupancy rates in Sedona in 2017.
I focus personal investments on small units, preferably 2 bedroom units. Small units are easier to keep more fully occupied than larger houses. They are also much easier to turn over and prepare for the next set of guests. Additionally, they are less maintenance intensive. I recommend investing in updating to a modern design and dont just put old second hand furniture in your properties (many will suggest this). To stay competitive you need to have quality properties and there are just lots of dated places in Sedona that people are short term renting.
Make no mistake, short term/vacation rentals are the hospitality industry and should not be treated like long term rentals. That is if your goal is to maximize ROI, then you need to treat them like operating a hospitality business. If you just want a second house and want it "rented" sometimes then you dont have to worry that much, you can certainly drive some extra revenue fairly easily, you just wont come close to maximizing the financial performance of the property.
Be weary of what local people tell you about vacation rentals, everyone thinks they know a lot but they really dont (I am not referring to Chad, but to property managers, cleaners, and other owners that have done this in the past on VRBO). The space has changed drastically over the last 2 years and for an established property manager their systems do not integrate well with the new changes in the space.
You need to understand HOAs can ban short term rentals even though AZ passed SB 1350 Jan 1 of last year (Google SB 1350). So you need to look for properties not in HOAs or in HOAs that allow/regulate short term rentals or dont mention anything about them in their CC&Rs. Note that if an HOA does not address less than 30 day "rentals" in their CC&Rs that is possible the CC&Rs go on to be amended to ban them.
People seem to either love short term rentals or absolutely despise them, so many wont be happy with you for turning your property into one. Even if you have actually improved the property and neighborhood as a result.
I am licensed agent but not longer focus on sales or leasing. I have also managed vacation rentals for other clients in Flagstaff as well as Sedona. Mostly all I do now is operate my properties and search for new good vacation rental properties in Sedona, Flagstaff, and also now parts of the Phoenix Metro area.
Sorry for the delayed reply, it's been awhile since I logged on. Has the market been hot still? I'm currently in Vegas market. Decided to come here instead, market is pretty solid during Covid as well.
@Cavan Mitchell
I live near Sedona and just bought a property to rent out. The market is not slowing. Housing prices keep going up. All throughout COVID Sedona has had tourists coming in.
Hello everyone & thank you so much for your incredibly detailed answers to questions I didn't even know I had. This was the best information about the Sedona market I have found anywhere. I love Sedona, my sister lives there and I've been dreaming of buying a house there for a while.
One question: what do you think about buying SFH pre-fabs as investors ? Do they appreciate as much as regular SFHs, or lower ? Could that be an issue down the line ? Do you believe people are less likely to rent one for short & long term ?
I just wanted to rejuvenate this great post about Sedona real estate. The market has gone from red hot to lava hot.
Expect quite a few multiple offers, many of which will be cash. Commonly we are seeing 10% - 20% above asking, as buyers are getting frustrated with making offers over and over again and not getting properties into escrow, as there is so much buyer competition and not enough property inventory. It's rough out there for buyers right now.
My forecast is we will likely see at least a few more years (and possibly 10+) of major heat, before things cool a bit. We are still on the front of this wave.
Be bold, buyers. Remember the show American Gladiators? Yep, it's a bit like that. The good news, is, there is a LOT of support here. The other good news, when you have the right team (The best local title company, realtor, mortgage broker, contractor, house cleaners, property management, etc), it goes smoothly and you get the best results).
With this corona virus scare, how does the real estate prices look for the near term? Has it affected the short term rental market?
I love the question.
It did have a brief impact, but that impact seems to have disappeared. At least in the Sedona area, 99% of buyers are fully invested in seeing and buying homes, and 99% of sellers are fine with buyer foot traffic through their homes.
The issues before were mainly stemming from title companies, mortgage brokers, lenders, realtors and buyers not being face-to-face and businesses slowing or shutting down, due to headquarters/offices closing and/or transitioning into remote business. But now it appears to be business as usual and buyers are clamoring to get some of the pie.
I just wanted to rejuvenate this great post about Sedona real estate. The market has gone from red hot to lava hot.
Expect quite a few multiple offers, many of which will be cash. Commonly we are seeing 10% - 20% above asking, as buyers are getting frustrated with making offers over and over again and not getting properties into escrow, as there is so much buyer competition and not enough property inventory. It's rough out there for buyers right now.
My forecast is we will likely see at least a few more years (and possibly 10+) of major heat, before things cool a bit. We are still on the front of this wave.
Be bold, buyers. Remember the show American Gladiators? Yep, it's a bit like that. The good news, is, there is a LOT of support here. The other good news, when you have the right team (The best local title company, realtor, mortgage broker, contractor, house cleaners, property management, etc), it goes smoothly and you get the best results).
I just wanted to rejuvenate this great post about Sedona real estate. The market has gone from red hot to lava hot.
Expect quite a few multiple offers, many of which will be cash. Commonly we are seeing 10% - 20% above asking, as buyers are getting frustrated with making offers over and over again and not getting properties into escrow, as there is so much buyer competition and not enough property inventory. It's rough out there for buyers right now.
My forecast is we will likely see at least a few more years (and possibly 10+) of major heat, before things cool a bit. We are still on the front of this wave.
Be bold, buyers. Remember the show American Gladiators? Yep, it's a bit like that. The good news, is, there is a LOT of support here. The other good news, when you have the right team (The best local title company, realtor, mortgage broker, contractor, house cleaners, property management, etc), it goes smoothly and you get the best results).
As far as the Sedona real estate market goes, non-STR properties have taken a hit and reduced in value. Most STR-friendly properties have, as well, but to a lesser degree. Hot STR properties that are more desirable and yield a strong ROI, are doing much better: Closer to -5% to +5% appreciation (depending on the property). There aren't many of these, as they need to check enough of the right boxes, to attract enough STR bookings. As everyone knows, the name of the game is occupancy- without sacrificing your ADR. Most people are not sure how to improve their STR's and aren't seeing occupancy, so they are dropping price to attract guests. I discourage this. I encourage leveraged cosmetic and functional improvements and marketing, to increase occupancy and ADR.
The hot STR's are still receiving multiple offers (but fewer) and even with the higher interest rates buyers are making it work. Although, they are eager for the day when they can refi down to lower interest rates to increase net cash flow.
The STR-friendly properties that are a step below the "hot" STR's, have real opportunity for deals. Many sellers are still a stick in the mud when it comes to price reductions, terms, etc- but some motivated sellers are slowly surfacing. As an example, I just got a luxury STR property in contract for my STR buyer clients at significantly below asking/market value, due to motivated sellers and creative negotiation, which should result in a great ROI and huge equity, once the real estate market stabilizes a bit.
The nation-wide interest rate and economy concerns are obviously justified and legitimately a problem for investors waiting to purchase or needing to refi right now. Just know the rates go up and go down and we will see them drop- but may take a few+ years. Although, there is already serious chatter about rates coming down in 2024. I *hope* we see 6.5%-7% next year.